07 Feb Foreclosures and Bankruptcy

It you are facing foreclosure, that means that the mortgage company has filed papers to sell your home because you are behind in the payments. (There are other reasons for foreclosures of property, but this is certainly the most common.)

There are, generally, three types of remedies to get you out of foreclosure:

1.Work with the mortgage company to catch up your payments or modify the loan. This is, unfortunately, often not available either because you lack the money to pay towards the amount you are behind, or because the mortgage company’s idea of a modification is for you to get caught up (wholly or partially) and then they’ll talk about it. Often the department that has control over modifications isn’t the legal department that is going forward with the foreclosure making this process almost impossible.

2.Use state court remedies. In a judicial foreclosure state, you can file a cross-compliant to the action for foreclosure, and often defend in that way. In a non-judicial foreclosure state, you can file an injunction against the foreclosure going forward, though often this will require continuing to make mortgage payments and posting a bond with the court.

3.File bankruptcy. The automatic stay created simply by filing bankruptcy stops the foreclosure process; sometimes permanently and sometimes only for a little while.

Certainly, these ‘remedies’ depend on where you live and the laws in your state. In a judicial foreclosure state, such as Florida, my colleagues, Chip Parker and Carmen Deluttri, both extremely knowledgeable in this area of law, tell me that the cross-complaint type of defense is the most effective and expedient.

In a non-judicial foreclosure state, or a state that allows both, like California, filing a chapter 13 bankruptcy is probably the best way to stop the process. You have to be able to make on-going payments through the plan, but if you can do that, getting caught up and saving the house is likely. There are also other things you can do in a Chapter 13 to ease the month to month bottom line: under appropriate circumstances, you can strip a 2nd deed of trust or reduce a car payment.

Additionally, we have laws being proposed such as the Helping Families Save Their Homes in Bankruptcy Act of 2009, which unfortunately did not pass.

We hope that someday new legislation will give bankruptcy judges, in Chapter 13 bankruptcies, the ability to modify mortgages and save homes.

Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.